InformationWeek

October 9, 2000

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Trading Partners Collaborate To Increase Sales

CPFR brings companies together to share data, cut product cycle times, and reduce inventory

By Noah Schachtman

More on collaborative planning:

E- DATA FOR A PRICE (8/28/00)

More Than Just Exchanging Data (8/21/00)

The Internet's True Benefit (8/21/00)

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ozens of major companies are betting that an Internet-based business model dubbed CPFR (collaborative planning, forecasting, and replenishment) will be the key to helping them slash inventories, cut cycle times, and ensure products are at the right place at the right time--all with the goal of increasing sales.

Ace Hardware, Federated Department Stores, Procter & Gamble, and Warner-Lambert are among the companies that see promise in this model, which relies on trading partners deploying co-managed planning process and information-sharing technologies. Industry Directions, a supply-chain consulting firm, says that in a recent survey of 120 businesses, 23% say they will have a CPFR pilot project under way in the next six months. An additional 42% are doing the initial research into CPFR, which was developed by the Voluntary Interindustry Commerce Standards Association as a cross-industry initiative.

"CPFR can generate sales increases while at the same time producing significant increases in inventory turns. There's between 15% and 40% too much inventory in the retail value chain--inventory that CPFR can take out," says Jim Unchneat, a director at Surgency, an IT consulting firm formerly known as Benchmarking Partners.

On the surface, collaborative planning, forecasting, and replenishment would seem to be a relatively straightforward process: Through an online system, a retailer and a supplier share sales forecasts to gauge demand for their products. Once both sides agree on these expectations, they begin to share sales data online.

If actual sales are more or less in line with these forecasts, the orders to replenish what's been taken off the store shelves are made automatically. If the results are sharply different from the forecasts, the CPFR system notifies the companies about these "exceptions," as they're known in CPFR parlance. Company planners can then adjust orders to accommodate these spikes or dips in demand before the store runs out of stock or the supplier's warehouse overflows with items retailers don't want. A workflow engine describes the notification process--which people are told, in what fashion (E-mail, pager, etc.), in what order, and what happens if there's no response within a certain time. Management tools let planners tweak the exceptions' parameters and alert system.

Procter & Gamble is among the companies that have seen tangible benefits from its initial CPFR tests, which rely in part on Syncra Systems Inc.'s CPFR-compliant Syncra Ct trading collaboration tool. During the past 18 months, Procter & Gamble has put in place pilot programs that reach across product categories--including laundry, shampoo, beauty, and paper products--and involve retail partners such as Kmart, Target, and Wal-Mart in the United States, and Dansk, Sainsbury, and Tesco in Europe. Each retail chain has chosen a different product line on which to focus. All told, the CPFR tests involve less than 1% of P&G's global case volume.

As a result of these initial forays, cycle time--the time it takes to get a product from assembly line to the retailer's shelf--has improved by 12% to 20%. Out-of-stock items have also dropped because P&G has immediate access to its retail customers' sales data and promotional plans, and can take action before a marketing campaign for a particular offering kicks into high gear--and before a retailer runs out of its products. In a recent promotion for Pringles potato chips, an English retailer was able to sell an extra $585,000 worth of the product because P&G spotted a potential out-of-stock problem before it happened.

But that's just the beginning of a chain of positive results that P&G expects once its collaboration efforts cover its spectrum of products. According to Ralph Drayer, Procter & Gamble's VP for efficient consumer response, forecast variability--the difference between forecasts and actual sales--is expected to improve by 10% across the spectrum. Inventory will be reduced by 10%, and operating expenses will fall as the number of times a particular set of goods has to be shipped, unloaded, and stored in a warehouse drops.

Not only will CPFR increase efficiency, Drayer says, it will increase sales by 2%. Most early CPFR adopters are seeing similar results; Industry Directions reports that the companies it surveyed earned an extra $9 million, on average, from CPFR experiments.

"This is often viewed as just a supply-chain program," says Joe Andraski, who's widely regarded as the father of CPFR for collaboration efforts he developed while working at Nabisco Inc. Nabisco has reported an increase of more than 50% in category sales, while keeping inventory under control, because of CPFR efforts. The difference is that with collaborative planning, forecasting, and replenishment, there's not only an increase in efficiency, but also an increase in sales. "We've seen in every pilot program an increase in sales. It's a big part of the CPFR magic dust," says Andraski, who now serves as senior VP at OMI International, a supply-chain software maker.